Some TV stations are tuning in to a sudden opportunity to sell what could be their most valuable asset – their airwaves. Cellphone companies covet them to satisfy the ever-growing appetite for mobile Internet use.
Stations thinking of selling are mostly small, such as niche ethnic outlets and cash-strapped public broadcasters; any sale represents a rare chance at big money. And even if they sell their “spectrum,” or broadcast frequency, they could still stay on the air by sharing bandwidth with another station.
In a national first, two local stations have begun a channel-sharing test: downtown L.A. public broadcaster KLCS (Channel 58), owned by the Los Angeles Unified School District, and KJLA (Channel 57), the flagship station of the bilingual Spanish-English LATV network.
So far, the experiment shows promise and thus could make a spectrum sale feasible, said Sabrina Thomas, general manager at KLCS.
“We find channel sharing to be a win-win,” she said. A sale of spectrum could be lucrative enough to “help sustain KLCS operations for the foreseeable future and give us financial independence.”
The Federal Communications Commission is asking American broadcasters to sell it spectrum, which the commission will then auction to mobile carriers such as Verizon and AT&T. Those companies would use it to improve their mobile broadband service.
Spectrum is a finite resource and especially valuable in Los Angeles since the area has a huge appetite for mobile data. As Thomas said, it’s beachfront property.
Under channel sharing, stations share a transmitter and antenna to simultaneously broadcast their programming. They compress their signals so they can broadcast side by side, sharing the 6 megahertz of spectrum that is allotted to each TV station.
Since television sets are tuned to capture a 6 megahertz channel, the stations can’t sell increments.
A channel-sharing arrangement should be invisible to viewers, since stations sharing a channel can keep their old place on the dial. Part of the test is making sure TV sets can parse out distinct feeds.
Go off air?
Theoretically, a station could sell its spectrum, stop broadcasting over the air and distribute on the Internet, but that could cut it off from cable distribution because local broadcast stations are guaranteed cable carriage under FCC rules. Cable companies have little financial incentive to carry an independent local programmer, the likely sellers of spectrum; they want national programming such as the History Channel.
KLCS uses its 6 megahertz of spectrum to broadcast its main channel, which features programming from the Public Broadcasting Service, and also for three other digital subchannels that feature PBS Kids programming and other educational content. The subchannels aren’t big ratings draws, but they are important to KLCS because they feature educational programming and serve people who don’t subscribe to pay-TV services.
KJLA also has nine subchannels. They can be found by plugging in decimal numbers, such as 57.2, into a remote.
Now, the study is helping the stations figure out exactly how much of that programming each station could keep on the air under their spectrum-sharing arrangement. It’s an exercise in understanding the finer points of data compression.
If the KLCS and KJLA test shows they can broadcast two or more high-definition channels simultaneously, it would be considered a coup for channel sharing, and would likely help the FCC persuade many more broadcasters to participate in the spectrum sales. Results of the study are expected next month.
Both stations acknowledged that some of the subchannel programming might have to be cut, especially in the case of broadcasting in high-definition, which uses more data.
But Alan Popkin, director of engineering at KLCS who is overseeing the pilot program, said that if the financial return from a spectrum sale is great enough, there could be a strong case to give it a try. One option would be to create an endowment with the proceeds to fund operations into the future.
“It’s a question of whether we can create a situation where it will fund the station in virtual perpetuity,” he said.
‘Real-world demonstration’
The push to free up broadcast spectrum comes largely from the wireless industry. Washington trade group Wireless Association, with membership that includes wireless carriers and handset makers, is financing the channel-sharing trial, which began earlier this year.
The FCC hopes to free-up 120 megahertz of spectrum from TV stations to sell to wireless carriers in an auction scheduled for the middle of next year.
The commission is focused on a band of spectrum from 20 TV channels that includes KLCS and KJLA.
Big markets such as Los Angeles are the priority, and the goal is to improve mobile broadband service and increase coverage for 4G networks and the like, as mobile Internet use surges.
A study from Georgetown University’s McDonough School of Business found that in next year’s spectrum auction, wireless companies could pay a total ranging from $19 billion to $31 billion.
The amount stations stand to gain will become clear later, since the FCC has not finalized the rules. But assuming sales are in the middle of that estimate, the average 6 megahertz channel would go for about $1.25 billion. However, most of that money – perhaps in excess of 90 percent – will go to the government. And whatever money a station receives likely would be split with its partner in its shared-broadcast arrangement.
Still, each station could end up with millions of dollars. FCC Chairman Tom Wheeler said recently that stations stand to “walk off with a big check from selling their old spectrum.”
Not all stations have shown interest in giving up spectrum, especially as new technology enters the market, such as ultrahigh-definition TV, which could require more of a channel’s capacity.
But financially challenged public broadcasters and smaller niche outlets are both strong candidates since the cash could make a big impact on operations.
“We’re in a good position for a change,” said KLCS’ Thomas. “That’s really cool.”
Operating losses
Spectrum sales are part of a broader effort at KLCS to bring in money as LAUSD has slashed funding to the station. Previous efforts have included staging its first fundraising campaign in 2012 and renting its studio to other producers. The station had an operating loss of $572,000 for the year ended June 30, 2012, the most recent results available.
Meanwhile, KCETLink in Burbank hired a consultant to explore the possibility of selling spectrum last year, as the public broadcaster, which recently merged with a public TV satellite network in the Bay Area, reported a loss of $12.5 million for the year ended June 30, 2013, according to the non-profit company’s most recent annual report.
“It is expected that, given the importance of the Los Angeles market to the success of the auction, such a transaction could yield significant liquidity to KCETLink,” the report said.
The opportunity has not escaped the attention of commercial broadcasters either. In 2012, Dallas-area investment firm and station owner NRJ TV purchased L.A. station KSCI-TV (Channel 18) out of bankruptcy. KSCI specializes in programming for ethnic communities in languages such as Filipino, Korean and Cantonese.
NRJ’s acquisition also included a station in Poway and one in Honolulu. The three stations cost $45 million. The firm has built a reputation in recent years as a spectrum speculator and has purchased other underperforming stations nationally. NRJ executives declined to comment.
Francis Wilkinson, general manager at KJLA, said his station is participating in the study in part because his digital subchannels are an important part of his business. KJLA licenses the subchannels to other operators that program them in Vietnamese and Mandarin. He wants to know how many of those subchannels he could keep if he shared a channel.
“We have a robust business plan with our digital channels,” he said. “We want to preserve as much of that as possible in a channel-sharing environment.”
Still, the pilot program doesn’t entail any future commitments, and Wilkinson said other options are on the table, too.
Stations will be allowed to sell and go off the air, or sell and move to another channel. Even if stations choose not to sell or channel share, the FCC might assign them new channels as part of the spectrum realignment.
For his part, Wheeler has said administering the coming spectrum auction has been a top priority since taking the FCC chairmanship in November.
He made a visit to KLCS last month and said on his blog that he’s optimistic the experiment will succeed and provide a framework for many other broadcasters to try channel sharing. But the implications could be even larger, he added.
“If KLCS and KLJA’s pilot is successful, and from what I have seen today, I am very optimistic it will be, it will provide a real-world demonstration about the technical and legal arrangements necessary for successful channel sharing,” he wrote. “If we get this right – and we must – it will be a huge win for broadcasters, mobile consumers, and the U.S. economy.”
